Editors' Blog

A tale of two Cities

Posted 20/06/2007 by Deal Comment

Handy to get confirmation of the SJ Berwin's profits and turnover and the financial results of Lawrence Graham – sorry, LG – on the same day. The simultaneous announcement makes it easy to compare two mid-market firms that not that many moons ago would have placed in the same market bracket, even if culturally they have always been poles apart.

And how things have changed. In 2003, SJ Berwin may have been bigger, but it was LG that was motoring, with average profits per equity partner (PEP) up by 33% in the difficult years since 2000 to hit £373,000. The firm had even come in sight of SJ Berwin’s own £444,000 PEP figure, which had not risen for three successive years.

But that was a while ago now and the latest figures illustrate all too starkly the disparity of the two firms’ fortunes since then. SJs announced its PEP was up 10% to £782,000 against a turnover of £189m, while LG’s PEP fell 7.5% to £430,000 and turnover remained flat at £66m.

It is a worrying result for LG, making it one of the few top 50 firms this year to see a fall in PEP, which the firm attributes to costs associated with its office move. But more worrying than falling profits are signs that the business is not growing.

While their practice breakdowns are still broadly similar, the two firms have developed into quite different beasts.

In attempting to grow, SJ Berwin has stayed resolute in promoting internally (although it doesn’t seem to cheer up its assistants much), while LG’s attempts to expand through lateral hires and bolt-ons have proved problematic. A good example of this came when LG absorbed accountancy-tied firm Tite & Lewis in 2004 – a merger which caused upheaval to its outsourcing team, where no legacy Tite & Lewis partners remain.

Likewise, SJ Berwin appears to have made more use in recent years of a strength the two firms share: property, which has continued to expand and bring in a decent stream of quality work for the firm.

Yet the biggest difference between the firms must surely be the ability of SJ Berwin to play its trump card in recent years: private equity.

What seemed back in 2003 to be limited to a leading funds practice has turned out to be one of the City’s mid-market success stories in transactional work. The firm has won clients such as Candover, Lion Capital and Star Capital Partners, which have handed the firm a series of mandates to boost its overall profit margin ahead of LG’s (around 45% compared with about 35%). Steve Davis, always a respected corporate operator, comes in for much credit for upgrading what had previously been viewed as a punch-below-weight transactional team.

The question now is how long SJ Berwin can sustain its growth – it has managed double-digit rises in both turnover and PEP for three years running, nearly doubling in size over that period. You could question whether the firm can keep expanding at this pace without risking severe growing pains. In contrast, LG clearly needs to the find the right formula to get back on the growth track.

It is possible to have too much growth? Well, it’s always better than not enough.

paul.hodkinson@legalweek.com

Legal Week Wiki law firm financial results special